By Wondirad Seifu

The Ethiopian leather sector has exhibited recession and boom with a high degree of predictability. But it offers a few buck's question. The trend, therefore, warrants close investigation.

Globally, the value of trade in leather and leather products is mounting to 70 million dollars, although, it has suffered from synthetic leather competition.  

In Ethiopia, leather and leather products have fetched about 90 million dollars. However, its share in world trade is bellow 0.1percent. Its payment in the last twenty years has averaged out close to zero real growth rate. It has also shown extraordinary stride at a rate that extends from + 50percent to - 50percent [see graph]

One may probably associate such a trend with problems ranging from price fluctuation to quality deterioration and supply chain complication. However, the magnitude of the growth seems reluctant to tender itself for such explanations. Rather, that the leather sector is hijacked on covertly manipulated to the tune of such a twist and turn.

In spite of such abnormalities, the leather sector, particularly, the shoe sub-sector, has recently displayed unprecedented development in the export trade. That is good news. The government has also taken some policy measures with a view to stimulate the sprouting development. That, too, is not bad.

But  it smacks of  conflicts of interest because the government is poised to join WTO - a trade regime in which trade barriers such as banning is staunchly condemned. Irrespective of such a passport to join the regime, the government has recently imposed a "regressing tax system" on the leather trade: 150 percent on raw hides and skins, 5-15 percent on finished leather.      
It is to be recalled that hides and skins were banned from export since 1987 until they were replaced by the tax barrier in 2008. However, both measures have no difference from the point of view of WTO. So does it from the efficiency standpoint. Hence, smuggling is inevitable, wastage is rampant and quality deterioration reaches its highest level with regard to hides and skins. By the way, recently the price of hides and skins has declined despite sky-rocketing price of live animals in the local market. Does this come about as a result of transferring the tax burden onto the producer?  

So far, the leather sector is said to enjoy a net supply of about 18 million raw hides and skins every year. At the international price (about 10 times that of the local), the "raw" is estimated to generate 4 or 5 times the export earning from leather and leather products. A tidy sum.

This does not mean to prompt raw hides and skins export, but to emphasize that free trade encourages optimum use of resources. In fact, the sum is supposed to be derived by producing finished leather and leather products as envisaged in the government's marshal plan: 200 million dollars by 2010, perhaps with a magic wand.

Incidentally, I have heard that a new venture is claiming an establishment of a tannery with an unprecedented mode of operation in such a way that it will use semi-processed hides and skins as an input from the local tanneries. Its benefit is clean as crystal, though the monetary unit of the transaction is unclean.

In fact, the claimed mode of operation is not new. It is a well-established state-of-the art installation in some of the local tanneries which has forged forward integration from new to finished leather operations. The paradox, however, is that they are unable to maintain it.

Needless to say, the advantages they may derive from their economies of scale. But who dares to shy away from free lunch (0% tax)? So what would be then the rate of the intended establishment with the so-called new mode of operation?

Notwithstanding such progression and regression, the leather curve is to predict: would it be boom or bust?